Yesterday…
Dr Ngozi Okonjo-Iweala, former Managing Director of the World Bank Group and Nigeria’s Coordinating Minister of the Economy and Minister of Finance wrote about Nigeria being one of the most volatile economies of the world and highly undiversified.

Although successful macroeconomic stabilisation was necessary to restore economic growth, it was not sufficient.

To get to the 7 percent per year growth rate targeted in NEEDS and sustain it, we needed to complement macroeconomic stabilisation with a set of micro economic reforms designed to change the direction and structure of the economy and lay the basis for longer-term growth.

We focused on sectors and areas that our analysis showed were large drains on public finances or were blocking private-sector activity and in which economic activity tended to be marred by corruption and the role of the state was a hindrance rather than a help to economic growth.

We targeted deregulation and liberalisation of the telecommunications sector, the downstream petroleum sector, and the power sector; privatisation of hundreds of public-sector enterprises; reform of the civil service; reform of the trade, tariff, and customs regime; and restructuring and consolidation of the banking sector.

Liberalising important sectors of the economy and privatizing public enterprises

Between 1973 and 1999, the Federal Government of Nigeria invested the equivalent of about US$100 billion in 590 public enterprises, 160 of them commercial, in virtually every sector of the economy, from petroleum refineries to flour mills, from telephone and electric power companies to radio stations, from oil palm plantations to car assembly plants. By the early 1980s, with oil revenues dwindling, the financial burden of maintaining these enterprises had become overwhelming.

The fiscal unsustainability of the public enterprises was an indication of broader problems. Often they were not only poorly managed but were also hotbeds of corruption, resulting in severe inefficiencies in operation and poor service delivery.

State-owned enterprises depended predominantly on financial support from the government, which came through several direct and indirect means.

But there were further drains on the Treasury, in the form of their very low rates of return – O.5 percent, on average – forgone taxes on profits, mismanagement of assets, and bad debts. Between 1992 and 1999, public enterprises consumed an average US$3 billion per year in direct and indirect subsidies, the Bureau of Public Enterprises estimated.

Nigeria was not the only country that created state-owned enterprises. In the 1960s and the 1970s, many of the newly independent African countries did the same. In those years, the view of the role of the state was vastly different.

There was a much more interventionist ideology that saw the state not just as an enabler or a regulator of private enterprise but as a producer of goods and services.

First, the government was seen as the primary driver of economic development, and it was expected to provide critical infrastructure and services such as power, transportation, and telecommunications at affordable prices to support economic activity in the economy.

Second, given the relative weakness of the existing private sector after independence and the limited private capital available for investments, the government also participated actively in other sectors, including manufacturing, finance, and hospitality.

Government spending and investment were expected to produce multiplier effects in various sectors of the economy. Third, against the backdrop of nationalism, the government wanted to encourage indigenous enterprises in the place or absence of those run by the colonial powers.

Fourth, by promoting local production of goods and services, the government sought to reduce imports, in line with the prevailing import-substitution theory of the time.

The government proved to be a bad manager of businesses, however, and a poor and inefficient deliverer of basic services.

Most public enterprises were persistently in a precarious financial position, generating significant debts and losses. Often unable to pay workers’ salaries, they also had huge pension liabilities – more than a trillion naira (US$8.3 million) in 2003.

Moreover, the enterprises suffered from a great deal of political interference in the running of their affairs. More than 5,000 board seats were said to have been created, conferring enormous patronage powers on political leaders. Board members often saw themselves not as responsible for overseeing the organisations for the benefit of the Nigerian public, but as beneficiaries of financial payback for their political contributions.

Management decisions became infected with personal and political agendas costly to the economy. Four examples of poor performance and poor service delivery illustrate this state of affairs.

Electric Power

NEPA, the Nigerian Electric Power Authority – also said in Nigeria to stand for Never Expect Power Always – was a giant public utility responsible for generating, transmitting, and distributing electricity. It consistently delivered one of the lowest levels of average per capita electricity production in the world.

In 1999, when President Obasanjo took office, a review of the sector showed that no new plants had been built and no major overhauls of existing plants had taken place for a decade, that only 19 of 79 generating units were in operation, and that no transmission lines had been built since 1987.

One-fourth of the average start-up cost for a business was for private power generation, and virtually all Nigerian manufacturing firms and small and medium size enterprises had back-up generators.!

Telecommunications

The Nigerian Telecommunications company (NITEL), a 50-year-old government telecommunications monopoly, had been able to provide only 450,000 land lines to Nigerians by 1999, when President Obasanjo first opened the sector for licensing of new mobile providers. NITEL’s mobile telephony arm, MTEL, has never been able to compete.

Oil and Gas

At the center of Nigeria’s complex oil and gas sector is Nigeria’s giant petroleum company, the Nigerian National Petroleum Corporation, which controls both the upstream sector (that is, exploration and production) and the downstream sector (including four refineries that scarcely function despite repeated investments in turn-around maintenance). Because of the country’s moribund refineries, very little of the refining is done in the country; almost all the refined products are imported.

Moreover, prices of refined petroleum products were heavily subsidised, with subsidies running close to 40 percent of the international price at the time of the reform program in 2003.

A combination of inefficiency, corruption, and unsustainable subsidies led to frequent shortages of refined products, with long lines and rationing at gas stations nearly every day in the world’s eighth-largest oil exporter. Government had to step in to bear an annual financial burden of about US$l billion in subsidies – out of a federal budget of around US$10 billion as of 2004 – to keep petrol prices low at the pump.

Ports

The Nigerian Ports Authority, responsible for the operation of the country’s seven ports, was also extremely inefficient. Thousands of tons of imported goods slated for manufacturers were held up at the ports, resulting in higher costs for the businesses. Nigerian port charges were high even by West African standards. In addition, Nigerian ports were grossly overmanned. Corruption was endemic in the ports, organised crime was rife, and security was lax.

In addition, the Nigerian Railway Corporation, the Nigerian Gas Company, and dozens of commercially oriented enterprises were all operating inefficiently, running up debts, and incurring losses that were contingent or direct liabilities on the budget.

The scale of the inefficiencies, the staggering financial losses, and the poor or nonexistent service delivery to the Nigerian public and the Nigerian economy meant that Nigerians were paying twice over for these public enterprises. A solution was needed.

In 1999, the democratically elected government of President Obasanjo relaunched and reinvigorated the privatisation and commercialisation programme, including the modification of Decree 25 on privatisation and its enactment as the Privatisation Act.

In a July 1999 speech at the inauguration of the National Council on Privatisation, Obasanjo accused public enterprises of “gross incompetence and mismanagement, blatant corruption, and crippling complacency.”

The Bureau of Public Enterprises, under the leadership of Mallam Nasir El Rufai and later (2005-2007) Irene Chigbue, was strengthened, and a methodology and an institutional framework were put in place to guide the privatisation, commercialisation, and liberalisation programmes. As prominent members of the Economic Team, and with the support of team members, El Rufai and Chigbue fought many battles to keep this important part of the NEEDS agenda moving.